Weekly Newsletter 12/05/14
Login   Trial   Guest
You are receiving this email because you are or were a BreakoutWatch.com subscriber, or have subscribed to our weekly newsletter. This newsletter summarizes the breakout events of the week and provides additional guidance that does not fit into our daily format. It is published each weekend.
Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
Prior editions of this newsletter with our valuable Tips of the Week are available here.
 Weekly Commentary  

The NASDAQ Composite sold off on Monday and spent the rest of the week struggling to regain the lost ground. Positive job creation numbers on Friday allowed the index to close the week with an accumulation day, although volume was still below average. The index closed the week with a small loss while the larger cap indexes made modest gains and new highs. Lower fuel costs and rising employment, and for the first time, improving middle class wages should continue to lift the markets while inflation remains low and the Fed maintains effectively negative interest rates.

NASDAQ Comp.
 Weekly Breakout Report  

Low volumes continued to constrain the number of confirmed breakouts while the average gain for the week remained at a relatively high 4% and only one breakout closed under water.

Breakouts for Week Beginning 12/01/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
12/04/14 ESPR HTF N 32.52 35.96 37.54 15.44 15.44
12/03/14 GIII CwH N 88.49 96.78 96.27 8.79 9.37
12/02/14 ANIP HTF N 55.74 58.51 53.29 -4.40 8.02
12/02/14 AERI CwH N 27.24 28.51 29.31 7.60 7.6
12/04/14 EEQ CwH N 38.00 38.80 40.16 5.68 5.68
12/05/14 BSFT SQZ Y 28.02 29.56 29.56 5.50 5.5
12/04/14 PFPT SQZ Y 45.34 46.52 47.73 5.27 5.27
12/02/14 KPTI CwH N 43.30 43.85 44.84 3.56 5.27
12/05/14 MANH CwH N 40.56 42.38 42.38 4.49 4.49
12/03/14 DTLK CwH N 13.04 13.20 13.6 4.29 4.29
12/04/14 SPNC CwH N 33.47 33.49 34.82 4.03 4.03
12/02/14 ABT CwH N 44.59 45.22 45.3 1.59 2.44
12/04/14 EEP CwH N 39.86 40.77 40.74 2.21 2.28
12/02/14 AHC CwH N 12.13 12.21 12.38 2.06 2.06
12/05/14 ULTA CwH N 127.38 129.75 129.75 1.86 1.86
12/05/14 ORAN CwH N 17.60 17.89 17.89 1.65 1.65
12/05/14 PNC SQZ Y 88.77 90.18 90.18 1.59 1.59
12/02/14 VVI SQZ Y 25.28 25.33 25.48 0.79 0.79
12/04/14 PGNX CwH N 7.23 7.25 7.26 0.41 0.41
12/04/14 FDO SQZ Y 79.58 79.68 79.78 0.25 0.25
12/05/14 MMSI SQZ Y 15.56 15.57 15.57 0.06 0.06
12/05/14 LFUS SQZ Y 98.81 98.87 98.87 0.06 0.06
Weekly Average (22 breakouts) 3.31 4.02

 
 New Features this Week Additional Value that we added this week

No new features this week.
 
This Week's Top Tip Tips for getting the most out of our site

Risk Adjusted Return - Excellent Profits at Lower Risk

Our  cup and handle backtest tool allows you to research the parameters for buying cup and handle stocks that give the best returns as market conditions change. I periodically run many simulations of the tool testing many different scenarios and the last time I did that was in May, 2014 (see Important Strategy Revisions).

I did so again this week and found the maximum return since the start of the year would have been obtained with the settings shown in figure 1 below (click image to expand). The important parameters are highlighted in yellow. The key results are highlighted in red. Note that the overall return was 77.3% but that the drawdown was $3,403.7 (32.8%). (Drawdown is the maximum loss sustained in the portfolio). It would be the bold investor indeed that would tolerate a 33% loss before abandoning the strategy.

In the same figure, look at the "Risk Adjusted Return" which rates as 2.3. This is the total profit divided by the maximum drawdown. It is how much capital was put at risk to obtain the overall profit.

Suppose that instead of looking for maximum possible profit we looked for maximum risk adjusted return. This would give us Figure 2. Our drawdown has been reduced to 11.2% of our initial capital and our profit is 37.7%. This is still an excellent return when a passive investment in the S&P 500 returned only 13.3%.

Best Return

Least Risk

Conclusion

For the optimal return (best profit at least risk) I now recommend the following trading strategy for cup with handle stocks:
  • Each day, create a personal watchlist of stocks that satisfy
    • RS Rank must be at least 90
    • Industry Rank must be in the top 20 percentile (i.e. have a rank less than 43 in our industry ranking scheme
    • Average daily volume >= 100,000.
  • Buy on alert
  • Sell at next open if volume at end of breakout day is less than 1.75 times average 50 day volume
  • Sell if stock drops 6% or more from the breakout price.
  • After purchase set a 4% trailing stop by monitoring daily high's and setting a stop loss at 4% of the maximum high after breakout. Adjust daily if necessary.
  • Sell if trailing stop met intraday.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17958.8 0.73% 8.34% Up
NASDAQ 4780.75 -0.23% 14.47% Up
S&P 500 2075.37 0.38% 12.28% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.73 %
Dow Jones
4.32 %
NASDAQ Composite
10.63 %
NASDAQ Composite
14.47 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Toy & Hobby Stores Toy & Hobby Stores Toy & Hobby Stores Drugs Wholesale
 Most Improved Industry (by change in technical rank2)
Diversified Computer Systems
+ 31
Home Improvement Stores
+ 64
Specialty Eateries
+ 164
Home Health Care
+ 168
Charts of each industry rank and performance over 12 months are available on the site

1The Market Signal is derived from our proprietary market model. The market model is described on the site.
2The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone. The site also shows daily industry movements.
 Top Breakout Choices Stocks on our Cup-and-Handle list with best expected gain if they breakout
Category
Symbol
Company Name
Expected Gain1
Best Overall FTR Frontier Communications Corporation 101
Top Technical FTR Frontier Communications Corporation 101
Top Fundamental BITA Bitauto Holdings Limited 58
Top Tech. & Fund. BITA Bitauto Holdings Limited 58
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Category
Symbol
Company Name
Expected Gain1
Best Overall PGNX Progenics Pharmaceuticals Inc. 100
Top Technical PGNX Progenics Pharmaceuticals Inc. 100
Top Fundamental ULTA Ulta Salon, Cosmetics & Fragrance, Inc. 34
Top Tech. & Fund. ULTA Ulta Salon, Cosmetics & Fragrance, Inc. 34
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.

If you received this newsletter from a friend and you would like to receive it regularly please go to the BreakoutWatch.com site and enter as a Guest. You will then be able to register to receive the newsletter.

Copyright 2014 NBIcharts, LLC dba BreakoutWatch.com. All rights reserved.
" BreakoutWatch," the BreakoutWatch.com "eye" logo, and the slogan "tomorrow's breakouts today" are service marks of NBIcharts LLC. All other marks are the property of their respective owners, and are used for descriptive purposes only.

BreakoutWatch is not affiliated with Investor's Business Daily or with Mr. William O'Neil. Our site, research and analysis is supported entirely by subscription and is free from advertising.



To unsubscribe from further breakoutwatch.com newsletters, please click here.